Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to determine how much of your income can be used for your monthly mortgage payment after you meet your other monthly debt payments.
How to figure your qualifying ratio
In general, conventional loans need a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.
The first number is the percentage of your gross monthly income that can go toward housing. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, PMI - everything that makes up the full payment.
The second number in the ratio is what percent of your gross income every month that should be applied to housing costs and recurring debt. Recurring debt includes things like vehicle loans, child support and credit card payments.
Examples:
A 28/36 ratio
- Gross monthly income of $2,700 x .28 = $756 can be applied to housing
- Gross monthly income of $2,700 x .36 = $972 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $2,700 x .29 = $783 can be applied to housing
- Gross monthly income of $2,700 x .41 = $1,107 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers with your own financial data, we offer a Mortgage Loan Qualification Calculator.
Just Guidelines
Don't forget these ratios are just guidelines. We will be happy to pre-qualify you to determine how large a mortgage you can afford.
AmeriBest Mortgage can walk you through the pitfalls of getting a mortgage. Call us at 3217777277.